Red States Urge Fifth Circuit to Rethink Board Diversity Support

The Fifth Circuit should reconsider its decision upholding Nasdaq rules aimed at increasing representation of women and minorities on corporate boards, 19 Republican state attorneys general led by Utah’s Sean Reyes said in a court filing.

The full US Court of Appeals for the Fifth Circuit should reexamine the October ruling by a three-judge panel and correct “manifest errors,” the attorneys general said in an amicus brief Tuesday. Ken Paxton of Texas, Ashley Moody of Florida and Patrick Morrisey of West Virginia were among the attorneys general who submitted the brief in support of the National Center for Public Policy Research, a right-leaning advocacy group challenging Nasdaq’s board diversity regulations, and have been active in cases attacking the consideration of environmental, social and governance issues in business and investment decisions.

The National Center for Public Policy Research and Alliance for Fair Board Recruitment have petitioned the full court to rehear the case against the Securities and Exchange Commission, which let Nasdaq Inc. implement the rules. The conservative groups sued the SEC in 2021, saying the agency overstepped its authority to approve the requirements for thousands of Nasdaq-listed companies to have diverse corporate boards or explain why they don’t.

“Because SEC has transgressed both constitutional and statutory limitations on its authority, the panel’s flawed endorsement of SEC’s Quota Rule warrants rehearing en banc,” the attorneys general said in their amicus brief.

Fifth Circuit Judge Stephen Higginson said in an Oct. 18 opinion that he and judges Carl Stewart and James Dennis found the SEC had the power to approve board diversity requirements. The rules, which start to take effect in December, generally require Nasdaq-listed companies to have at least one woman and at least one minority or LGBTQ member on their boards, unless they report why they’re unable to comply.

Reyes and other Republican attorneys general told the Fifth Circuit the SEC lacked the authority to endorse the rules in a 2021 amicus brief. The Democratic-led SEC approved the regulations along party lines that year, with no Republicans supporting the rules.

Higginson, Stewart and Dennis were appointed to the Fifth Circuit by Democratic presidents. But judges installed by Republicans hold the majority on the full court.

The case is Alliance for Fair Board Recruitment v. SEC, 5th Cir. A, No. 21-60626, amicus brief filed 11/28/23.